Can Anything Stop Polaris' Drive Forward?

The recreational vehicle business is on track to hit $4 billion in annual sales, with profits rising in the double-digits yet again. Is there still time for investors to get on board?

May 5, 2014 at 12:35PM

Recreational vehicle and towables giant Polaris Industries (NYSE:PII) has been on an unstoppable tear for the past 12 months, even while the U.S. economy at large has limped forward. Big-ticket purchases continue to defy overall consumer spending trends, and Polaris' ever-expanding line -- which now includes a revival of the iconic Indian motorcycle brand -- is riding the demand wave all the way to the bank. The company issued another round of stellar earnings last week, and management raised its prospects for the current quarter and full year. While current investors love the ride, is there room for those who are just now catching on?

Uphill trek
By nearly every measure, Polaris Industries' business continues to grow at an impressive clip. The company released its fiscal-first-quarter results last week to a delighted Wall Street, as the numbers depicted a record quarter for the company.

Net sales grew just shy of 20% to $888.3 million (a record figure for the first quarter), while operating income gained 24%, and the bottom line trekked up 11.2% to $1.19 per share. Some analysts bemoaned the slowing profit growth, as the gain represented a slower pace than much of the company's past several years. Still, the number beat analyst estimates by an average of $0.03. Looking at each segment, investors really shouldn't fear for the company's growth prospects.

Motorcycle sales are up 52%, driven by the aforementioned Indian revival. Off-road vehicle (ATVs and the like) sales are up 11%, and the small vehicle segment grew an absurd 248% -- again a product of new additions to the lineup via the recent acquisition of Aixam.

Due to the strong sales figures and the promise of more product expansion throughout 2014, management raised full-year guidance to as much as $6.45 per share. The high-end estimate would represent a 19% EPS gain over 2013.

Why it makes cents
Polaris Industries is a uniquely diversified company set to continue growing substantially in the long run. From its burgeoning small vehicles segment to snowmobiles, and even apparel, the company's relevance in the various niches is tremendous. The name is known for quality across the board. The Indian motorcycle revival, in the author's opinion, isn't a game-changer for the company, but it certainly goes a long way in the marketing department. Competing head-on with Harley-Davidson (NYSE:HOG) (a company that is also delivering fresh models at a rapid pace) in this department is a hard battle. Still, it was a telltale sign when Harley Davidson introduced its eight new models (dubbed Project Rushmore) a moment before the Indian relaunch. Clearly, Harley management wanted to downplay the story of another American heavyweight motorcycle brand coming into the picture. 

A UBS analyst recently reported that Indian dealerships are sourcing 80% of the brand's sales from former Harley-Davidson riders. In a way, the market is Harley's to lose, and Polaris' to seek. 

Of course, then there is the matter of valuation. At nearly 18 times forward earnings, investors are paying up for this growth stock. If the economy reverses fortune, or credit gets substantially tighter, big-ticket purchases could take a dive. For price-conscious investors, it's important to realize there is decent downside risk at these levels. Given that Polaris is such a diversified vehicle maker, it can be tough to find a direct comparison. Harley-Davidson, which is obviously a pure play on the motorcycle business, trades just shy of 16 times forward earnings. Arctic Cat, a major brand in the snowmobiling world, hasn't had the same success as Polaris in recent periods and guided for lower sales back in January, but it also trades at a much less expensive 12.4 times forward estimated earnings. Polaris' outlook suggests the stock premium is worth it, in this case. 

One could compare the business to the infinitely larger vehicle giant Honda, as the company does make a variety of off road vehicles that compete with Polaris. Honda trades at just nine times earnings, but is ultimately a tough comparison, considering it is one of the largest vehicle manufacturers in the world (at a $60 billion market cap) compared to Polaris. 

Nevertheless, Polaris is a well-run business with a growing market share in every part of its business. The company has a history of increasing its dividend and a phenomenal debt profile, to boot. For those willing to pay the premium, it's a great business to own.

The greatest thing Warren Buffett ever said
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries. The Motley Fool owns shares of Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers